Wednesday, December 19, 2007

Dragons Disgrace

I might be considered slightly entrepreneurial in two possible areas: I have original ideas that might be worth something, and I run my own marketing consultancy business. However those two areas are not well integrated.

Related to that subject is one reality show that I confess to watching. The BBC's Dragons' Den sees budding entrepreneurs pitch their ideas in front of five millionaires. What should happen is that either the idea is laughed out of court or the "dragons" compete for a stake in the promising business.

Sometimes we get a decent match, the inventor with the good idea gets the assistance and buy-in of a successful businessman who has the contacts, incentive and cash injection to grow the startup company. But what we see more often is that the dragons are looking for free money - they will only commit if the startup already has the patents, the contracts, the business plan that will guarantee a return. Of course that's what any investor would choose, but to me that is not the spirit of the programme.

However the very best ideas do not see just one or two dragons interested, all five of them can see obvious loot and an obvious victim in front of them. So instead of competing for investment, they collude. They abuse their monopoly position and come to an agreement that gives all of them the maximum (equal) stake - which is obviously the one that leaves the victim with the minimum stake. You could argue that the victim has some choice, he could walk away with no deal at all, but the reason he is in there is because he is to some extent desperate for cash, and the whole environment is stacked with five against one.

Like buyers in the open market, the dragons should be competing against each other for the best deal. We did see this in some of the earlier programmes. But like all bastard cartels, they have learned that it is better to collude than to compete.

I don't blame the dragons in the sense that is normal profit-maximising behaviour. But ethically it is disgraceful. That is why we have anti-monopoly laws in the world outside the den, and the BBC producers need to change the rules (for example to allow a maximum of two investors per product) to bash the bullies and stop the sleaze.

1 comment:

v!sh said...

I am in abetter position to enjoy the series....